April 30, 2005

New model homes may not be covered by Tarion

It came as quite a surprise to me to discover last week that the Tarion new
home warranty does not always cover model homes. I always thought that
Tarion (previously the Ontario New Home Warranty Program) covered all brand
new construction, but it appears that model homes may be exempt from
mandatory protection.

Last week a client came into my office to review with me a builder offer for
a new Toronto townhouse. The house had been used as a model home by the
builder. In the sales office, my client was told that the builder would
offer its own lesser warranty but the house was not protected by the Tarion
warranty.

That didn't sound right to me, so I decided to verify whether the house was
eligible for Tarion warranty protection. To my surprise, I discovered that
the Tarion warranty may not cover model homes, even if they are brand new
and have never actually been occupied by a purchaser.

When my client called Tarion directly, a warranty rep from the "technical
duty desk" told him that warranty coverage was mandatory, and that coverage
applied whether the house was a model home or not. All model homes are
covered, he told my client, "no ifs, ands or buts."

In order to resolve the conflicting statements, I phoned the builder's sales
and marketing co-ordinator. I asked if the model home was covered by Tarion,
and she replied, "I don't know the answer."

I then spoke to Dave Roberts, Tarion's head of enforcement who said a model
home must be covered by the warranty, which starts on the date of possession
by the purchaser.

I also consulted Mary Mullens, the vice-president and general counsel of
Tarion. She explained in a detailed email that in order to qualify for
warranty coverage, a home cannot have been "previously occupied."

Determining whether or not a home has been previously occupied is not a
simple task. If the house was merely a model home, warranty coverage is
mandatory. But if it was actively used as a sales office, for example, if it
had computers, phones, copiers, faxes, desks and printers, it would have
been "previously occupied." As such, the first purchaser would not benefit
from the mandatory warranty coverage provided to new homes under the Act.

My colleague, Harry Herskowitz, acts for a number of large developers. He
practises law at DelZotto Zorzi in Toronto and is vice-chair of the Tarion
board of directors. He told me that warranty coverage depends on the
"nature, extent and duration of use" of the model home.

If the use of the home was not extensive, Herskowitz said, it would qualify
for warranty protection. The safest thing a would-be buyer could do, he
said, was provide Tarion with a detailed factual background of the use of
the house since it was built, and ask it to confirm whether the model
qualifies for coverage.

The issue of previous occupancy was dealt with by Justice Arthur Gans in a
1998 court case. Sidonio Moreira had built a new, 3,200-square-foot- house
in the Lawrence Ave.-Dufferin St. area of Toronto. During construction, he
moved some personal items into the house and "lived" there for a few months.

He later moved out while construction continued and the property was placed
on the market as a "custom-built new luxury home."

Eventually, an agreement of purchase and sale was signed with Jose and
Candida Carreiro, but they refused to close when Moreira would not register
the house under the warranty legislation.

Both parties applied to the Ontario Superior Court to determine whether the
house had to be registered under the warranty Act, and if so, whether the
agreement was void because the house was not registered.

Looking at the facts, Justice Gans found that Sidonio had not previously
"occupied" the house before deciding to sell it. "For occupancy to occur,"
he wrote, "there must be an element of residency or tenancy. Simple
possession does not and should not suffice."

The purchase agreement was ruled void and the Carreiros got their deposit
back.

The lesson of this case, and the story of my client who still wants to buy
the model home, is this: If you're buying a model home or the builder's own
residence, make sure the offer states whether or not you're getting the
Tarion warranty. If not, discuss with your lawyer the risks you are taking
and the potential costs you could incur by buying a new home without the
statutory warranty.

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Bob Aaron is a Toronto real estate lawyer. He can be reached by e-mail at bob@aaron.ca,
phone 416-364-9366 or fax 416-364-3818. Visit
http://www.aaron.ca

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.